18/10/2007

(this document is also posted on the website of SHARE)

Executive Summary

Pension funds in Ontario are long-term investors. But chronic short-termism in capital markets presents challenges to their security and sustainability. This paper argues that pension plans will be strengthened by introducing a regulatory amendment requiring each pension plan to disclose the extent to which, if any, environmental, social and governance (ESG) considerations are taken into account in the selection, retention and realization of investments. There is increasing awareness that ESG characteristics of businesses represent significant sources of risk that pension funds, in particular, should monitor carefully. Highly diversified investment portfolios make pension funds ‚Universal Owners‛, giving them an interest in broader economic performance and a concern for firm-level externalities. Some Canadian pension funds are beginning to incorporate ESG considerations into their decision-making. Other funds stand to benefit enormously from paying attention to these issues as they present real, long-term risks to all investors. Mandating disclosure brings these issues into clear focus not only for pension funds, but also for their investment managers and other agents.

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About SHARE

The Shareholder Association for Research and Education (‚SHARE‛) is a national non-profit organization dedicated to assisting institutional investors in their consideration of the long-term social, environmental and economic impacts of their investment decisions. Since its creation in 2000, SHARE has carried out this mandate by providing active ownership services, including responsible investment training, proxy voting, and shareholder engagement. SHARE undertakes research on emerging responsible investment issues and advocates for public policy that supports responsible investment practices.